Equity Markets March A Little Lower
Another month gone by…another month fraught with equity market volatility. During March the S&P/TSX Composite lost 1.7% but was well off of its lows hit two-thirds of the way through the month. Not only did we witness volatility in the equity markets, but as well in commodities. The price of both oil and gold hit record highs during the month as investors seemingly bought them as a hedge against the weak U.S. dollar and the turmoil in the financial markets. But even the oil and gold trades seemed to unwind in the latter part of the month, as the fundamentals didn’t justify the spike in prices. For the first quarter the S&P/TSX Composite lost 3.5%, but despite its loss it ended up ranking as one of the better performing world indices, as many fell double-digits on a percentage basis. For the first quarter the S&P 500 declined 9.9% marking its worst Q1since 2001. However, most the damage was done in January and February, with March losing only 0.6% on a month over month basis. The technology sector was the strongest performer in March rising by 9.0% primarily due to the strength in the shares of Research In Motion (RIM) in advance of its earnings due out on April 2nd. Shares of electronics component maker Celestica (CLS) gained 8.2%, while Open Text (OTC) rose 2.4%. Shares of Nortel (NT) fell by 17.4% during March, bringing its loss on a year-to-date basis of 53.3% at quarter end. Shares of Bank of Montreal (BMO) had a wild month falling at one point almost 25% below where it closed at the end of February. BMO announced during March that agreements had been reached to restructure the Apex/Sitka trusts, which was greeted positively by the markets.
The BCE (BCE) saga continued to drag on through March and despite two favourable
announcements the stock ended the month 2.6% lower at $34.75. The company won in the case filed by certain holders of Bell Canada bonds, however an appeal hearing will begin on April 28th.
The CRTC approved the purchase of BCE subject to certain conditions being met. Investors concerns seem squarely focused on whether or not the consortium led by Ontario Teachers’ Pension Plan will obtain the funding from the banks. TD Bank (TD) CEO Ed Clark has said publicly that “we will be there with our money.”
The biggest news story in the equity markets during March had to be that venerable Bear Stearns (BSC), which has been in business for 85 years, would be taken over for approximately US$2 per share (subsequently raised) by JP Morgan Chase (JPM). The Federal Reserve agreed to fund up to US$30 billion of Bear’s less liquid assets. The announcement of the deal unleashed another torrent of selling within the battered investment dealer and brokerage sector. Investors started to sell other investment banking firms including Lehman Bros. (LEH) with sellers routing the stock by more than 50% intraday on March 17th, before recovering some of the losses. Lehman subsequently reported earnings later that week which exceeded analyst consensus, and shares have subsequently rebounded. Bear Stearns which had a few days earlier said that it had no liquidity issues, suddenly had them as investors withdrew funds. The Fed announced that it had authorized the Federal Reserve Bank of New York to create a lending facility “to improve the ability of primary dealers to provide financing to participants in securitization markets.” This measure was put in place to help dealers obtain liquidity. So with the first quarter behind us, perhaps one of the simplest conclusions that we can make is that market volatility will be with us for some time to come.